The real estate market is an attractive investment destination for many Americans. A growing number of Americans (28 percent on last count) say real estate is their preferred long-term investment.
There are big benefits that come with investing in real estate. It’s a source of passive income, the cash flow is stable, offers great inflation protection, and the value of your assets can keep growing.
Sounds exciting, right? But how much do you need to invest in real estate? This is the #1 question in the minds of prospective real estate investors.
Read on for expert insight.
How Much Do You Need to Invest in Real Estate?
Is there a magic number? The answer is no!
Just like most investments, there’s great flexibility when it comes to starting investment capital. With real estate, the amount you need to get started can range from $1,000 dollars (or less in some cases) to $500,000 or more.
There’s practically no limit when it comes to real estate investment. Want to buld a skyscraper in New York City where the average cost per floor is $15 million? You might need close to a billion or more to make your investment a reality.
So, what determines how much you need to invest in real estate? There are a number of factors, as fleshed out below.
Type of Real Estate
The type of real estate you want to invest in has a direct impact on your capital requirements. Here’s a list of some real estate investments you can make:
- Real estate investment trusts (REITs)
- Residential real estate
- Commercial real estate
- Raw land.
REITs are organizations that invest in different types of real estate but allow anyone to purchase shares. This is akin to investing in a company’s stock. You can invest in REITs with as little as $1,000, so if you thought you need lots of money to be a real estate investor, you’re in luck!
Residential real estate is the most common type of real estate and by far the most attractive to new investors. All you need to do is buy rental property and let it out. Now, the cost of rental property varies depending on the type of property, but on average, investors spend about $250,000. An apartment unit is going to be cheaper than multifamily real estate, for example.
Commercial real estate and raw land require high capital amounts. It takes an experienced investor with deep financial pockets to make successful investments in commercial real estate.
Location affects the price of immovable real estate assets. Just like it costs a lot more to build a skyscraper in New York City compared to an inner city like Birmingham in Alabama, residential real estate in big cities costs more than the rural areas.
Cost doesn’t just vary from city to city or town to town. Even neighborhoods in the same city can have different prices for similar properties.
As a real estate investor, you must do location research. Identify areas where property prices are within your investment budget.
Start Investing in Real Estate
So, how much do you need to invest in real estate? It depends on the type of real estate investment you want to make, as well as the location. In general, though, investing in real estate calls for good financial preparedness.
Explore our blog for more investment advice.